US soybean and wheat futures advance as weak dollar sparks rally
Strong buying by investment funds has also supported grain market in recent weeks
Singapore : US soybean and wheat futures rose around 0.7 per cent yesterday as a weak dollar prompted a broad rally in the commodity markets, lifting gold to a new high and firming crude oil prices.
But analysts said corn, wheat and soybean markets were vulnerable to bearish fundamentals of rising supplies and lacklustre demand.
"It appears that the grain markets have taken a positive lead from what is happening in the outside markets," said Luke Mathews, commodity strategist at Commonwealth Bank of Australia. "We have seen the US dollar open lower and crude oil has moved higher."
Strong buying by investment funds and the sliding US dollar have supported the Chicago Board of Trade grains in recent weeks, lifting soybeans to a three-month high on Tuesday. Corn climbed to a two-week high, while wheat rose to its highest level in one week on the same day.
CBoT December wheat rose 0.8 per cent to $5.58 (Dh20.4) a bushel by 0259 GMT, January soy was up 0.7 per cent to $10.40 a bushel and corn rose 0.4 per cent to $3.93 a bushel.
The yen and the dollar fell after Bank of America Corp said it would repay $45 billion of taxpayer bailout funds, boosting investor confidence and trimming safety bids in those currencies.
Gold prices rose to record highs as worries about the economic recovery encouraged buying of the metal as a safe-haven investment. Soaring gold is viewed as a barometer of inflationary fears, another bullish factor for wheat, corn and soybeans, while the falling dollar makes US commodities a better buy for importers using currencies like the yuan or euro.
But the fundamentals are bearish and the grain markets are likely to pull back if support from the outside factors falters.
Soybean output is likely to have reached record-high in the United States this year and the weather is favourable for production of the oilseed in South America. The harvest for near-record corn crop has progressed in the past few days and there are bulging wheat stocks around the world.
"If we see the fund selling continue then we would expect wheat prices to move lower over the course of the US session tonight," said Mathews.
"For corn, we have had a couple of days of favourable harvest weather in the US and that should push corn prices lower. In the soybean market, people are starting to realise that we are going to have a large South American crop.
